Managing the personnel budgeting process: since salaries make up the greatest portion of the expenditure budget, it makes sense to apply forecasting techniques that can show where payroll dollars are headed.

• Author: Fishbein, John
• Position: Statistical data

Given the revenue constraints most governments are facing, increased emphasis is being placed on accurate expenditure projections. Since salaries make up the greatest portion of the expenditure budget, it is logical to apply forecasting techniques that can provide a correct picture of where payroll dollars are headed. Another consequence of slowing revenues is the need for greater control over expenditures. Governments can use various mechanisms to manage headcount levels in light of cost constraints.

VACANCY ADJUSTMENTS

Budget payroll projections are based on the estimate of budgeted positions for the year, so providing the correct number of budgeted positions is important. Not all positions will be filled 52 weeks per year, so expected vacancies need to be addressed in the salary budget. In doing so, however, governments should exercise caution and consider developing policies or rules of procedure on how to treat these vacancies. If the government fully funds salaries associated with vacancies, it is building some potential cushion into the budget that may come in handy to make up for shortfalls in other areas at year's end. If it does not fully fund these salaries, it builds in much less flexibility. In forecasting open positions, organizations should keep in mind that technical or higher level positions are usually harder to fill.

Start Dates. Expected start dates for open positions may vary. Keeping track of those assumptions is important because an actual start date that differs from the budgeted date could cause a large dollar variance.

Past Trends. Since most governments have some vacancies during the year, it may be prudent to include a hiring lag in the budget. One way to determine the dollar impact of this lag might be to look at past trends (average filled positions per year versus average vacant positions). This analysis can be done at the department level or even broken out by individual position.

Frozen or Eliminated Positions. Given the nature of the current economy, many open positions are intentionally not being filled. While some of these positions may be eliminated before the fiscal year begins, other positions may be temporarily frozen once the fiscal year begins. The dollars saved by not filling these positions should be quantified (see Exhibit 1). If the positions being eliminated are currently filled, then the budget might also need to include severance payouts.

Funded Versus Unfunded Positions. Not every position that is requested gets approved. Approved, or funded, positions--along with the money to pay for them--are included in the budget. Unfunded positions, or those that were requested but not approved, should be noted, especially if management decides at some point to reconsider some of those denied position requests.

Departments often include new positions in their budget requests, typically in the departmental request stage. In detailing new positions in the final budget presentation, it is useful to categorize them by funded versus unfunded. This way, budget decision makers can clearly communicate those unfilled positions that do not have budget dollars available. The budgetary implications of not funding those positions could also be shown.

COLLECTIVE BARGAINING UNITS

When the personnel budget is being developed, the positions that are covered under collective bargaining should be noted. The group name and representation should be identified, along with the beginning and end date of the contract.

Contract Settlements. Be aware of key dates in contract provisions. For instance, there may be lagging settlement dates, even after the end date of the contract. Also, it may be prudent to set aside reserves for contract settlements, especially if it is anticipated that the new terms may be less favorable than the existing contracts.

Other Considerations. Some union agreements include such items as holiday premiums, shift differentials, uniform allowances, and license/certification pay. These should also be accounted for in the budget, as failure to do so could lead to significant cost overruns.

THE IMPACT OF INFLATION

Inflation can have a large impact on payroll forecasting. Cost of living adjustments need to be made when forecasting personnel costs. The Consumer Price Index for Urban Consumers (CPI-U) is the cost of living index used most often for determining salary increases. The CPI-U is a broad measure of...